Greening Accounting II: Exploring Feasibility of Environmental Accounting Framework
2. Environmental accounting in hospitality business: a case example
To explore the pragmatic elements of EA framework proposed in the previous chapter, this sec- tion details how EA can capture firm-environment exchange to integrate externalities by using inputs from a real-life case example (Section 3), before generalizing information produced by such a framework (Section 4) and summarizing learning from the experiment (Section 5).
2.1. The project site
The case study selected to support this experiment was conducted by the author in 2012–13 to study the relevance of environmental management accounting (EMA) in the hospitality sec- tor and to expand the knowledge base with the findings. The study involved understanding the operating environment of two co-located hotels (five-star and three-star) in the western suburbs of Mumbai, India, that are managed by concept hospitality services (CHS facilities, hereafter) (Figure 1), and how they managed to reduce the impact on environment. Rationale for using this case study is to generate a view on the working of a firm from an industry where mass-balance is not the primary method to establish input-output link that has not been cov- ered very often in literature. A service organization is expected to improve our understanding of the stock and flow of environmental aspects that differ from the manufacturing organiza- tion. Readers interested in the complete case study1 can refer to Debnath [1]. Due to limited space, only the major features of the case are highlighted here.
2.2. Analysis of key findings
The CHS facilities are Ecotel® certified —certification of environmental and social leader- ship in hotel/hospitality business [2]—and equipped with the infrastructural and operational arrangements to support environmental conscious operational arrangements. Both the facili- ties are full-service business hotels and offered boarding/lodging, boutique restaurants, bars,
1Out of the three case that the author conducted as a part of his PhD thesis, this one has been selected here to support the argument for greening accounting.
and lounge facilities to the business travellers along with banquet and conference halls for corporate use. Guest service lifecycle covered reservation of rooms and guest check-in, fol- lowed by stay, boarding, and checkouts. The amenities and services consumed materials, water, energy and other resources, and produced wastes as outputs. Cumulative waste quan- tities (solid waste and waste water) reported in Table 1 were collected from the organizational records, whereas GHG emission due to energy consumptions is as per the norms of GHG accounting [3].
All types of solid waste were segregated at source and collected through a 4-bin system that optimized its reuse/recycling. In regards to disposal of waste, CHS had invested in developing a vermicomposting facility to treat biotic waste that converted waste to compost (bio-fertilizer), which was sold at a nominal rate. Waste categorized and collected as unfit for recycling or reusing (e.g. butter paper, oil cans, etc.) was sent to landfill (a miniscule percentage say, 1–2%
by weight). CHS also routed waste water to the community ETP for recycling, from where the treated water (mainly grey water) was received back for further use. CHS had laid pipes to circulate grey water and used it for designated purposes, such as cleaning and gardening. This reduced its operational dependency on fresh water. Complete recycling of organic waste and use of grey water saved CHS from contributing to the environmental impacts that it would have otherwise if waste was disposed using conventional means. However, the tangible sav- ings in social costs cannot be incorporated as a part of EMA construct (Table 2). Neither would the liability arising due to waste water generated by laundry services that it outsourced to the external commercial washers. Table 2 details cost of environmental care for CHS as per EMA norms by keeping it restricted within the organizational boundary.
Figure 1. Operational layout of CHS (Sourced from Ref. [1]).
2.3. EA: accounting for environmental care of CHS
To account for the aspects that CHS business activities generated, monetization norms were needed, so as to journalize these in the EA books. To monetize, valuation methods are used as proxies that would translate the externalized liability corresponding to the aspect. For example, externalized liability due to solid waste disposed through municipal infrastructure
As per EMA As per the case study Amount (in INR)
(a) Material waste Dry and wet garbage—Bottles, packing materials, empty containers, food wastes, and others (100% recycled)—150 mt per annum
0.00
(b) Non-product outputs Waste water (100% recycled) ~ 45,000 kL per annum 0.00 (c) Waste and pollution
prevention costs
Fixed costs per annum of maintaining Ecotel certification Running cost of vermicomposting facility
Operating cost of other activities with environmental considerations
250,000 +60,000a Unascertainable
(d) R&D expenditure New initiatives for reducing environmental load Not available (e) Less tangible costs Emission externality of ~ 4.5 mtCO2e per annum 1,015,000b
Total cost 1,325,000
aAssumed maintenance cost of vermicomposting facility (1 person @ INR 5000 per month).
bEmission costs at INR 225/tCO2e (USD 4.5 at assumed exchange rate of INR 50/USD) [4].
Table 2. EMA computations for CHS.
Month (Unitsa)
Food production (Covers)
Garbage (mt)
Linen for wash (Par)
Water consumption (kL) Energy (kWh)
GHG (tCO2e) Supply Laundry
outsourced Total
Apr 9069 14.8 43555 4156 7170 11326 347783 341
May 8248 14.1 51949 5140 8507 13647 353394 346
Jun 5283 10.3 35045 5899 5775 11674 332496 326
Jul 5585 10.9 39003 6356 6416 12772 352577 346
Aug 7586 11.1 54359 4906 8916 13822 368708 361
Sep 10111 11.0 45280 5632 7443 13075 357025 350
Oct 8144 11.4 57461 4344 9428 13772 380822 373
Nov 7790 10.7 47311 4041 7761 11802 341721 335
Dec 13434 9.2 52360 8956 8597 17553 347388 340
Total 75250 103.7 426323 49431 70012 119443 3181914 3118
aUnits: kL—kilo liters; mt—metric tons; kWh—kilo watt-hours; tCO2e—tons of carbon dioxide equivalent.
Table 1. Monthly consumption of resources.
is pegged at INR 3500 mt−1 as the cost not internalized by CHS [5]. Externalized cost included actual cost of disposal incurred by municipalities along with externalities due to GHG gen- eration from organic waste and social costs contributed by the informal sector. Similarly, GHG emission is valued at opportunity cost of market rate at USD 4.5 per tCO2e (INR 225 at exchange rate of INR 50 per USD) which has been the average rate of carbon for Indian projects in voluntary emission credit market [3]. Waste water has been valued at resource replacement rate of INR 50 kL−1, as followed in other EMA case studies [6]. Accordingly, environmental ledgers are drawn by journalizing entries that followed double-entry system, where respec- tive aspect ledger (of asset nature) is debited to represent the release of specific type of waste to the common pool. These ledgers correspond to the physical nature of the aspects (waste and emissions) and reflect the environmental asset generated by the firm, akin to the finished products. Corresponding credit would go to the respective environmental account (of liability nature) so as to reflect externalized liability. A reversed entry on the other hand would reflect liability that has been annulled due to the changed processes/activities or any other reason. In simple terms, following accounting rules are abstracted from the generalized schematics for EA (as per Appendix 1) and have been used to draw the ledgers (Tables 3–7):
(a) Journal entries should be balanced across quantity and value.
(b) One accounting entry would always use same units of measurements.
(c) To account for more than one aspect per business transaction, each aspect would have to have its own journal entry.
(d) In case suitable monetization norm is not available for an aspect, it will remain in physical inventory.
The ledgers are interpreted as under:
(a) Ledger entries are summarized for different periods and represented combined form of t-accounts to record physical and monetary values together. However, firms can maintain separate accounts record aspect inventory and corresponding monetized liability.
Date Particulars Qty. (mt) Debit (INR) Date Particulars Qty. (mt) Credit (INR) 12/12 To balance c/f 103.7 362,950 04/12
05/12 06/12 07/12 08/12 09/12 10/12 11/12 12/12
By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c By Env. liability A/c
14.814.1 10.310.9 11.111.0 11.4 10.79.2
51,800 49,350 36,050 38,150 38,850 38,500 39,900 37,450 32,200
Total 103.7 362,950 Total 103.7 362,950
Table 3. Solid waste (externality) T-account.
(b) Credit balance of Table 3 reflects social externality saved by CHS due to vermicompost- ing to treat bio-waste, instead of using municipal solid waste disposal system. Table 4 brings in the supply chain effects into the books of the CHS by performing resource accounting of waste water from outsourced laundry, and accounted it as an environ- mental liability for CHS. Table 5 reflects equivalent carbon value of GHG emissions due to energy usage.
(c) Based on the selective performance data, these externalities created environmental ob- ligation of around INR 3.8 million for 26 thousand guest nights (annualized) or INR 147 per guest night (Table 7). Accordingly, environmental liability at period-end rep- resents monetized balance (in quantity and monetary terms) to reflect externalities, not annulled.
(d) Management information (Table 7) is generated based on data/inputs from the sample ledgers and can be traced back to the individual ledgers, but without positive social externalities due to knowledge sharing by the firms [7] that cannot be quantified due to lack of suitable numeraire.
Date Particulars Qty. (kL) Debit (INR) Date Particulars Qty. (kL) Credit (INR) 04/12
05/12 06/12 07/12 08/12 09/12 10/12 11/12 12/12
To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c
71708507 57756416 89167443 94287761 8597
358,500 425,350 288,750 320,800 445,800 372,150 471,400 388,050 429,500
12/12 By balance c/f 70,012 3,506,000
Total 70,012 3,506,000 Total 70,012 3,506,000
Table 4. Waste water (outsourced laundry) T-account.
Date Particulars Qty. (tCO2e) Debit (INR) Date Particulars Qty. (tCO2e) Credit (INR) 04/12
05/12 06/12 07/12 08/12 09/12 10/12 11/12 12/12
To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c To Env. liability A/c
341346 326346 361350 373 335340
76,725 77,850 73,350 77,850 81,225 78,750 83,925 75,375 76,500
12/11 By balance c/f
3118 701,550
Total 3118 701,550 Total 3118 701,550
Table 5. GHG emissions T-account.